by Jasondeuman

Today’s Rando-Pedia is about Psychological Pricing

This pricing theory works on several hypotheses:

  • Consumers ignore the least significant digits rather than do the proper rounding. Even though the cents are seen and not totally ignored, they may subconsciously be partially ignored. Some[who?] suggest that this effect may be enhanced when the cents are printed smaller (for example, $1999).
  • Fractional prices suggest to consumers that goods are marked at the lowest possible price.
  • When items are listed in a way that is segregated into price bands (such as an online real estate search), price ending is used to keep an item in a lower band, to be seen by more potential purchasers.
  • Judgments of numerical differences are anchored on left-most digits, a behavioral phenomenon referred to as the left-digit anchoring effect. This hypothesis suggests that people perceive the difference between 1.99 and 3.00 to be closer to 2.01 than to 1.01 because their judgments are anchored on the left-most digit.

All of this is to urge consumers to buy things, because it appears to be less expensive, because american consumers are not good at simple math ideas like rounding up.  3.99 is not 4.00, it looks a lot more like 3.00.

This is becoming less important as people are not paying with cash in favor of debit and credit cards.

In this article I found it interesting that high end chains are opting to reverse the traditional psychological pricing by posting prices in whole numbers so that their brand is associated with quality. So instead of pricing something at 299.99 they will simply post at 300.00.

Consumers are easily duped.  We want to believe that we are getting a deal, and little techniques like Psychological Pricing make an incredible difference on our buying decisions.


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